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2016 (8) TMI 710 - BOMBAY HIGH COURT

2016 (8) TMI 710 - BOMBAY HIGH COURT - 2016 (341) E.L.T. 22 (Bom.) - Deemed export - Supply of intermediate goods by the DTA unit to 100% EOU unit - claiming refund of the TED paid by the petitioners' DTA unit on the goods supplied to the petitioners EOU. - Payment of duty on exempted goods by the DTA unit - Held that:- When there is an exemption, then, this refund claim was rightly disallowed. We do not think that any individual decision and in the case of a distinct assessee would, therefore, .....

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larifying the obvious position, we have no hesitation in concluding that the refund applications were properly and correctly disallowed. - Decided against the assessee. - WRIT PETITION NO. 2927 OF 2015 & WRIT PETITION NO. 2926 OF 2015 - Dated:- 1-8-2016 - S.C. DHARMADHIKARI & DR. SHALINI PHANSALKARJOSHI, JJ. Mr. Prakash Shah with Mr. Prasad Paranjape and Mr. Jas Sanghavi i/b M/s. PDS Legal for the Petitioners in both the Writ Petitions. Mr. Anil C. Singh, Additional Sol .....

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e forthwith. 3 Since both sides relied on the pleadings in Writ Petition No.2927 of 2015, we would take the facts and events from that petition. 4 The petitioner in this petition claims to be a 100% Export Oriented Unit ( EOU for short) engaged, inter alia, in the manufacture of goods falling under Chapter 30 of the Schedule to the Central Tariff Act, 1985, and for that purpose they have a factory, inter alia, at the address mentioned in the cause title. They als .....

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Domestic Tariff Area Unit ('DTA for short). It is claimed that the said unit has been supplying these goods, on payment of cenvat duty under claim for rebate, to the petitioners EOU unit. The petitioners case is that these goods are used in the manufacture of goods cleared for export. The fact that the petitioners final products of the EOU unit have been exported is not disputed. 6 Relying upon the Foreign Trade Policy ( FTA for short) of 2004-2009 / 2009-2014 (Paras 8.1, 8.2, 8. .....

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In terms of para 8.5 of the FTP, supply of goods will be eligible for refund of terminal excise duty ( TED for short) in terms of para 8.3(c) of the FTP, provided recipient of goods does not avail cenvat credit of duty paid by the DTA unit under the provisions of the Cenvat Credit Rules, 2004. The petitioners DTA unit did not claim benefit of TED refund and to this effect the DTA unit has issued its disclaimer certificate to enable the petitioners EOU to claim the refund of the TED paid on goods .....

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pril, 2012, 29th October, 2012 and 4th April, 2013, involving the period commencing from January, 2012 to December, 2012. It is claimed that all the export documents were supplied along with these applications but the same were rejected on the ground that there is a policy circular dated 15th March, 2013, by which the Director General of Foreign Trade ( DGFT for short - respondent No.2) purported to clarify, inter alia, that no refund of TED should be provided by the Development Commissioners / .....

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e with law. Annexure-G is a copy of this order. Then, the time to dispose of refund applications was extended by this Court and subsequently, written submissions were filed. The refund claims were rejected on 6th January, 2015, and a copy of this order is Annexure-I. 9 It is aggrieved and dissatisfied with this order that the present writ petition has been filed. 10 The impugned order proceeds on the footing that the petitioners refund applications cannot be entertained an .....

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the DGFT / office of the Development Commissioners because such supplies are ab-initio exempted from payment of excise duty. 11 It is the correctness of this conclusion and for the reasons to be found from paragraphs 9 to 14 that is assailed in this writ petition. 12 An affidavit-in-reply has been filed on behalf of the respondents by one P.S. Raman working as a Joint Development Commissioner in the office of the Development Commissioner, SEEPZ, Special Economic Zone, Mumb .....

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raph 23, it is stated that the supplies made by a unit in DTA to an EOU is treated as deemed exports as per para 8.2(b) of the FTP. It is also admitted that para 8.3(c) of the FTP extends the benefit under deemed exports for the supplies which qualify as deemed exports. The qualified deemed exports are undoubtedly eligible for the corresponding benefits, as applicable. One of the benefits is the TED refund. Para 8.3.(c) of the FTP covers both TED refund as well as exemption from TED for differen .....

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submitted that the conclusion in the impugned order is correct. Reliance is also placed on CBEC Circular dated 3rd May, 2007, copy of which is annexed as Exhibit-E to the affidavit. 13 The petitioners have filed an affidavit-in-rejoinder and apart from reiterating the arguments in the writ petition so also the grounds thereof, what is urged is that the refund claims in the past have been granted. It is submitted that the recipient EOU with the disclaimer from DTA supplier is entitled .....

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d the above rules. In the rejoinder affidavit it is contended that the policy circular cannot be held to be clarificatory and, therefore, no retrospective effect can be given to it. It is submitted that the approach of the respondents is contrary to the judgment of the Delhi High Court in the case of Kandoi Metal Powders Mfg. Co. Pvt. Ltd. vs. Union of India, 2014 (302) E.L.T. 209. For these reasons it is submitted that the petitions be allowed. 14 Mr. Shah appearing on beh .....

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d by the Development Commissioner because such supplies are ab initio exempt from payment of excise duty. Mr. Shah submits that there is now another contention raised to the effect that the petitioners have attempted to encash the cenvat credit by seeking refund under para 8.3 (c) of the FTP and refund of cenvat credit under Rule 5 of the Cenvat Credit Rules is not permissible for deemed export and is permissible for physical export. Mr. Shah submits that another ground is made out and by a stat .....

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ed as deemed exports and DTA suppliers shall be eligible for relevant entitlements under Chapter 8 of FTP, besides discharge of export obligations, if any, on the supplier. Notwithstanding the above, EOU / EHTP / STP / BTP units, on production of suitable disclaimer from DTA supplier, are eligible for obtaining entitlement specified in chapter 8 of the FTP. For claiming deemed export duty drawback, they shall get brand rates fixed by the Development Commissioner wherever all industry .....

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ubmits that in any event, the respondents cannot deviate from the past and consistent practice of granting refund of TED on goods supplied to EOU. He relied upon the several orders passed in that behalf. He points out that there was never any suppression or misrepresentation as the respondents were aware that the DTA unit is the supplier to the EOU. The DTA unit having issued an authorisation in favour of the petitioners which is an EOU that EOU is entitled to apply for and claim the refund. Thi .....

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no power or jurisdiction to amend the policy. Its powers are limited, namely, to interpret and implement a FTP. The power to amend it vests exclusively in the Central Government. Once the refund claim pertains to a period prior to the amendment, then, the earlier provisions must govern the same. 18 Mr. Shah has placed heavy reliance on the judgment of the Delhi High Court in Kandoi (supra) to submit that there the respondents had taken up similar defence, but the Division Bench reject .....

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reasons, Mr. Shah would submit that the writ petition be allowed. 19 Mr. Shah has taken us through the entire FTP 2009- 2014 and the Notification dated 18th April, 2013 and 1st March, 2015 from the compilation of the documents. 20 On the other hand, the learned Additional Solicitor General of India appearing on behalf of the respondents would urge that there is no merit in any of these contentions of Mr. Shah. It is submitted by the learned Additional Solicitor General that .....

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:p> Once the policy circular was issued and it is merely clarificatory, then, neither the earlier orders of refund nor the judgment of the Delhi High Court would govern the controversy and can be of any assistance to the petitioners. For these reasons it is submitted that the petition be dismissed. 21 For properly appreciating the rival contentions, we would make a reference to the FTDR Act. The FTDR Act, 1992 is an Act to provide for the development and regulation of foreign trade by .....

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ce with the provisions contained in the Special Economic Zones Act, 2005. 22 Before us, there is no dispute that the authority which has passed the impugned order was so empowered. It had the necessary power and jurisdiction to pass the impugned order. By Chapter III, the Central Government has powers to make orders and announce the FTP. Section 3 falling in Chapter II confers power to make provisions relating to imports and exports. Subsection (1) itself clarifies that the whole emp .....

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: 5. Foreign Trade Policy.- The Central Government may, from time to time, formulate and announce, by notification in the Official Gazette, the foreign trade policy and may also, in like manner, amend that policy: Provided that the Central Government may direct that, in respect of the Special Economic Zones, the foreign trade policy shall apply to the goods, services and technology with such exceptions, modifications and adaptations, as may be specified by it by notificatio .....

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modifications and adaptations, as may be specified by it by notification in the Official Gazette. The appointment of Director General and his functions are covered by section 6 and by sub-section (2) of the same, it is his duty to advise the Central Government in the formulation of the FTP and he shall be responsible for carrying out that policy. 24 The Central Government may, by order published in the Official Gazette, direct that any power exercisable by it under the FTDR other tha .....

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e us that he can interpret the said policy or any of such stipulations in the nature thereof during the course of its implementation. 26 For the present proceedings Chapter VI and VIII of the FTP are relevant. They have been compiled for our benefit by the petitioners' counsel. 27 Chapter VI of the FTP 2009-2014 deals with EOUs, Electronics, Hardware, Technology Parks etc. Para 6.1 deals with Eligibility. Units undertaking to export their entire production of goods and .....

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f the conditions indicated in ITC (HS). Clause (b) of this paragraph is important for our purpose and it reads as under:- (b) An EOU/EHTP/STP/BTP unit may import and/or procure, from DTA or bounded warehouses in DTA/international exhibition held in India, without payment of duty, all types of goods, including capital goods, required for its activities, provided they are not prohibited items of import in the ITC (HS). Any permission required for import under any other law shall be appl .....

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held in India without payment of duty all type of goods including capital goods required for its activities, provided they are not prohibited items of import in the ITC (HS). We are not concerned with the import by an EOU. In this case, we are concerned with the procurement by the petitioner No.1 from domestic tariff area (DTA). It is its own unit which has been supplying the materials. We have noted that the emphasis of the respondents is on the words without payment of duty appearing in claus .....

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DTA supplier, be eligible for obtaining entitlements specified in chapter 8 of FTP. For claiming deemed export duty drawback, they shall get brand rates fixed by DC wherever All Industry Rates of Drawback are not available. 29 From a reading thereof, it is apparent that supplies from DTA to EOU units will be regarded as deemed exports and DTA supplier shall be eligible for relevant entitlements under chapter 8 of FTP, besides discharge of export obligation, if any, on the supplier. N .....

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not leave the country and payment for such supplies is received either in Indian rupees or free foreign exchange. Mr. Shah submits that para 8.2 deals with categories of supply of goods by main / sub contractors which shall be regarded as deemed exports under FTP, provided goods are manufactured in India and supply of such goods is at EOU. Mr. Shah then relies upon para 8.3 which deals with Benefits for Deemed Exports. The deemed exports shall be eligible for any / all of following benefits in r .....

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orisation if such manufacturer, in turn, supplies the product(s) to an ultimate exporter. Mr. Shah submits that para 8.4.2 of the of FTP states that the supplier shall be entitled to benefits listed in para 8.3(a), (b) and (c) of the FTP whichever is applicable in respect of supply of goods to EOU. 31 Benefits to the supplier are set out in para 8.4.1. Mr. Shah also relies upon para 8.5 which reads as under :- 8.5 Eligibility for refund of terminal excise duty / drawback.

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s / components. 32 A bare perusal of para 8.5 would reveal as to how it deals with eligibility for refund of terminal excise duty / drawback. 33 Since heavy reliance is placed by both sides on the circular dated 18th April, 2013, we would reproduce the relevant paragraph for our purpose : (i) Existing Paragraph 8.3(c) Exemption from terminal excise duty where supplies are made against ICB. In other cases, refund of terminal excise duty will be given. .....

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diate goods, against invalidation letter, made by an Advance Authorisation holder; and (iii) Supplies of goods by DTA unit to EOU/EHTP/STP/BTP unit. Thus such categories of supply which are exempt ab initio will not be eligible to receive refund of TED. 34 Mr. Shah submits that the subject of this circular is amendment in para 8.3(c) and para 8.4 of the FTP pertaining to deemed export scheme. Thus he would submit that this is an amendment of the FTP by the Gover .....

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ategories of supplies which are exempt ab initio will not be eligible to receive refund of TED. 35 We would prefer to rest our conclusion on this part of the controversy as the petitioners are submitting that the respondents are trying to support the impugned order by additional reasons and which are set out in the affidavit-in-reply. 36 Whether this is a merely clarificatory provision or it purports to amend and substantively the paragraph 8.3 and, therefore, it would not .....

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April 2012 to June 2012, the petitioners made applications to the third respondent to that writ petition. The applications for refund were made on 29th August, 2012, and 16th November, 2012. By orders passed separately in October and November, 2012, these refund claims were denied. In compliance with the provisions of the policy, the petitioners wrote to the second respondent claiming relaxation and these letters were addressed in December, 2012. These were also turned down on 14th May, 2013.

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ve been relied upon. The relevant amendment carried out by the circular to the earlier FTP of 2009 with material particulars is relied upon. On the other hand, the respondents relied upon the averments in the counter affidavit as well as a letter addressed by the third respondent on 31st May, 2013, directing consequential instructions to be issued to field formations in the light of the amended circular dated 15th March, 2013. The argument was that in case the petitioner wishes to seek refund, t .....

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.e. in which refund of TED will be given. The Division Bench in paragraph 9 held that the respondents passed an adverse order on the footing that some clarification was given by the Policy Interpretation Committee in its meeting of 4th December, 2012. The reasoning appears to have prevailed with the Policy Interpretation Committee, but the Court was unable to comprehend the rationale of the decision of the second and third respondents who seemed to have suggested that the petitioners should appr .....

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at is why the Division Bench quashed the orders and directed to process and pass appropriate orders on the refund application in terms of the 2009 policy. 39 To our mind, the Division Bench did not at all deal with the contentions as have been noted by us in the foregoing paragraphs of this judgment. We would have to, therefore, deal with this issue and independent of this judgment. Once we find that the export and import of goods and particularly by EOU is dealt with by para 6.2, the .....

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as noted by the respondents and of the claim for refund is the assertion of the petitioners that they are 100% EOU engaged, inter alia, in the manufacture of goods falling under chapter 3 of the Schedule to the Central Excise Tax Act, having a factory at Navi Mumbai. The letters dated 20th April, 2012, 20th October, 2012 and 4th February, 2013, vide which three TED refund claims were made were filed in the office of the Development Commissioner, SEEPZ, Special Economic Zone for the period/quarte .....

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petitioners were regularly filing applications with the Development Commissioner claiming refund of TED paid by the DTA of the goods supplied to them. Previously all such refund claims were sanctioned. The petitioners' assertion was that the TED refund claims were filed before the issuance of the policy circular dated 15th March/18th April, 2013. In any event, the policy circular cannot apply to the claim filed for the period prior thereto and it cannot be given retrospective eff .....

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that the goods supplied to EOU is deemed export and the petitioners have not claimed the credit of cenvat duty paid on the goods supplied by the DTA unit to them and they are eligible for refund thereof. Then, without prejudice it was urged that the policy circular also admits that if the duty is paid, then, it should be refunded. 40 The respondents in dealing with all these contentions, to our mind, have rightly taken note of the provisions of the FTP and Handbook procedure Volume I .....

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s have held is that the policy circular is merely clarificatory. We have no hesitation in accepting this contention for the simple reason that para 6.2(b) and 6.11(c)(ii) of the FTP states that no refund of TED should be provided by Regional authorities of the DGFT or the office of the Development Commissioners because such supplies are ab initio exempted from payment of excise duty. The harmonious reading of this policy and particularly the paragraphs referred to above enabled the respondents t .....

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